Intimation order under Section 143(1) invalid for not providing mandatory 30-day response period to assessee

ITAT Delhi held that intimation order u/s 143(1) dated 30.03.2019 was invalid as it was passed without providing mandatory 30-day response period to assessee. The order was issued on 30.03.2019 while assessee's response time expired on 22.04.2019. ITAT found the screenshot showing assessee's response on 23.03.2019 was incorrect, noting same-day issue and response dates were unlikely. The intimation order was declared bad in law, disallowance made thereunder was deleted, and assessee's appeal was allowed.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are as follows:

a) Whether the intimation under section 143(1) of the Income Tax Act, 1961 (hereinafter 'the Act') dated 30.03.2019, which made adjustments amounting to Rs. 74,08,038/-, was validly passed, given that the assessee was not provided the mandatory 30-day period to respond to the notice issued under section 143(1)(a) of the Act dated 23.03.2019Rs.

b) Whether the adjustments made under section 143(1), including disallowance of club membership/entrance fees, provision for gratuity, and belated remittance of Provident Fund (PF), were justified and in accordance with the provisions of the Act and principles of natural justiceRs.

c) Whether the interest levied under sections 234B and 234C of the Act by the Central Processing Centre (CPC), Bangalore, was justified and in accordance with facts and lawRs.

d) Whether the appellate authority (Ld. CIT(A)) erred in confirming the adjustments and interest levied by the Assessing Officer (AO) and CPC, thereby violating principles of natural justice and statutory provisionsRs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Intimation under Section 143(1) Passed Without Allowing 30 Days for Response

Relevant Legal Framework and Precedents: Section 143(1)(a) of the Act mandates that before making adjustments in the return of income, an intimation proposing such adjustments must be issued to the assessee, providing an opportunity to respond within thirty days. The second proviso to section 143(1)(a) specifically requires that any response received within this period must be considered before making adjustments. If no response is received within 30 days, adjustments can be made.

The Tribunal relied on the precedent set by the Kolkata Bench in the case of Camellia Educare Trust, where it was held that intimation under section 143(1)(a) passed without allowing the assessee the statutory 30-day period to respond is invalid and "bad in law".

Court's Interpretation and Reasoning: The Tribunal examined the timeline of events: the notice under section 143(1)(a) was issued on 23.03.2019 proposing adjustments of Rs. 74,08,038/-, and the intimation under section 143(1) was passed on 30.03.2019, just seven days later. The statutory 30-day period for the assessee to respond would have expired on 22.04.2019. The Tribunal noted that the Income Tax Portal erroneously showed a response date of 23.03.2019, the same day as the notice, which the Tribunal found improbable and inconsistent with the portal's display of "submit response" status for AY 2017-18, unlike the "view response" status for AY 2022-23 where a response was actually filed.

The Tribunal held that the intimation passed on 30.03.2019 was premature and violated the statutory mandate under section 143(1)(a). It was passed without considering any response from the assessee and before the expiry of the 30-day period, thus violating the principles of natural justice and the express provisions of the Act.

Key Evidence and Findings: The Tribunal relied on the affidavit of one of the company's directors confirming no response was filed prior to 30.03.2019, screenshots from the Income Tax Portal showing the status as "submit response" for AY 2017-18, and the sequence of events chart submitted by the assessee. The Tribunal also noted the absence of any contrary evidence from the Revenue.

Application of Law to Facts: Applying the statutory provisions and the principle of natural justice, the Tribunal found the intimation under section 143(1) dated 30.03.2019 to be void ab initio as it was passed without providing the assessee the mandatory opportunity to respond.

Treatment of Competing Arguments: The Revenue did not contest the factual matrix regarding the timing of the intimation and the response period. The Tribunal found the Revenue's reliance on the orders below insufficient to overcome the statutory requirement.

Conclusion: The intimation under section 143(1) dated 30.03.2019 is quashed as invalid and void ab initio for non-compliance with the mandatory 30-day response period under section 143(1)(a).

Issue 2: Justification of Adjustments Made Under Section 143(1)

Relevant Legal Framework and Precedents: Section 143(1) allows for limited adjustments to the return of income, including arithmetical errors, incorrect claims apparent from the return, and other specified disallowances. However, such adjustments must be made in compliance with procedural safeguards, including notice and opportunity to respond.

Court's Interpretation and Reasoning: Since the intimation under section 143(1) was held invalid, the adjustments made therein, including:

• Disallowance of club membership/entrance fees amounting to Rs. 15,31,712/-;
• Addition towards provision for gratuity of Rs. 57,10,887/-; and
• Addition for belated remittance of Provident Fund (PF) of Rs. 1,65,439/-;

were also invalidated by implication. The Tribunal did not delve into the substantive merits of these adjustments as the procedural infirmity rendered the entire intimation and adjustments void.

Key Evidence and Findings: The Tribunal noted the assessee's grounds challenging these adjustments as based on surmises and conjectures, and contrary to law. However, the Tribunal refrained from adjudicating these grounds in detail due to the primary issue of procedural non-compliance.

Application of Law to Facts: The statutory scheme requires adherence to procedural safeguards before making such adjustments. The failure to provide the assessee the opportunity to respond vitiated the entire process.

Treatment of Competing Arguments: The Revenue's argument that the adjustments were justified and confirmed by the CIT(A) was rejected on the ground that the foundational intimation was invalid.

Conclusion: The adjustments made under section 143(1) are deleted as the intimation itself is void ab initio. The Tribunal did not adjudicate the substantive correctness of the adjustments.

Issue 3: Levy of Interest Under Sections 234B and 234C

Relevant Legal Framework: Sections 234B and 234C of the Act provide for levy of interest for default in payment of advance tax and deferment of advance tax installments respectively.

Court's Interpretation and Reasoning: Since the adjustments leading to the demand of tax and consequently interest were quashed, the basis for levy of interest under these sections also fell away. The Tribunal did not elaborate on the merits of the interest levy, as the primary order nullifying the intimation rendered the interest charge untenable.

Conclusion: The interest levied under sections 234B and 234C is deleted consequent to the quashing of the intimation and adjustments.

Issue 4: Validity of the CIT(A)'s Confirmation of the CPC Order

Relevant Legal Framework: The appellate authority is bound by the provisions of the Act and principles of natural justice in confirming or setting aside orders passed by lower authorities.

Court's Interpretation and Reasoning: The Tribunal found that the CIT(A) erred in confirming the intimation and adjustments passed under section 143(1) without considering the fundamental procedural violation of non-providing the mandatory 30-day period to the assessee to respond. This failure rendered the CIT(A)'s order unsustainable.

Conclusion: The CIT(A)'s order confirming the intimation and adjustments is set aside.

3. SIGNIFICANT HOLDINGS

The Tribunal's crucial legal reasoning is encapsulated in the following verbatim extract:

"On similar facts, the Kolkata Bench of the Tribunal in the case relied by the assessee held as under: ... 'Thus, we find that the impugned intimation issued u/s. 143(1)(a) of the Act, dated 30-11-2021 is not in compliance with the 1st proviso to section 143(1)(a) of the Act and thus, the impugned intimation is invalid under the Act.' ... In our considered view, the loss claimed by the assessee amounting to Rs. 87,143/- is liable to be allowed."

Core principles established by the Tribunal include:

• An intimation under section 143(1) making adjustments must comply with the procedural mandate of providing the assessee a 30-day period to respond to the notice under section 143(1)(a).
• Passing an intimation before the expiry of this period and without considering any response from the assessee violates the principles of natural justice and is void ab initio.
• Adjustments made pursuant to such invalid intimation cannot be sustained, and consequential interest demands also fall away.
• Appellate authorities must ensure compliance with these procedural safeguards before confirming such adjustments.

Final determinations on each issue are:

• The intimation under section 143(1) dated 30.03.2019 is quashed as void ab initio.
• All adjustments made therein amounting to Rs. 74,08,038/- are deleted.
• The interest levied under sections 234B and 234C is deleted.
• The order of the CIT(A) confirming the intimation and adjustments is set aside.

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